A bigger pie or a bigger slice?
Civitas, 6 June 2011
Today saw the release, and discussion, of a number of interesting barometers, all purporting to shed light on some of the maladies afflicting Britain. While the TUC published its study on the stagnation of wages for low and middle earners, the Centre for Policy Studies (CPS) released its analysis of Britain’s declining industrial competitiveness. Can these analyses, from across the political spectrum, be reconciled?
Stewart Lansley’s report for the TUC on ‘Britain’s Livelihood Crisis’ documents how many middle and low-income jobs have witnessed below-average growth in real levels of remuneration since the late 1970s. According to the report ‘skilled motor mechanics’ witnessed earnings growth of just 34% between 1978 and 2008 compared to a median of 57%. Some occupations have even witnessed declining levels of remuneration, for instance ‘fork lift truck drivers’ have seen their wages fall by 5% over the period. In contrast professionals, those in high-income jobs, have seen above-average growth, solicitor’s earnings rising by 114%.
Moving from employee remuneration to industrial competitiveness, the CPS analyses a number of international studies, noting Britain’s movement down the league tables. Looking at the ‘Global Competitiveness Report’ and the ‘World Competitiveness Yearbook’ Ryan Bourne and Jon Wilson highlight how, since 1997, the UK has slipped from 7th to 12th in the former, and 9th to 22nd in the latter.
If both the TUC and the CPS are right then Britain is becoming a less competitive place to do business, where some employees are suffering below-average wage growth. Can the CPS and TUC find common cause in addressing some of Britain’s economic woes? Not likely, this is clear when the reasons for these problems are discussed.
The TUC believes that Britain’s ‘livelihood crisis’ is the result of the country turning away from ‘welfare capitalism’ and embracing ‘market capitalism’ in the 1980’s. Deregulation and the acceptance, by both political parties, of the need for freer markets, has resulted in growing inequality. The cure – a ‘post-market model’ in which the Government intervenes in the economy to create more evenly-spread economic growth.
In contrast, if the CPS accepts the TUC’s diagnosis of the problem (which I doubt it would), its remedies certainly differ. For the CPS Britain’s economic future can only be secured by lowering taxes, removing restrictive (in particular employment) regulations and shrinking the size of the state and the deficit. In short the CPS wants a fuller expression of ‘market capitalism’. Providing support for their conclusion the authors of the report cite Britain’s fall down the ‘Index of World Economic Freedom’, from 5th to 16th between 1997 and 2011, as indicating how economic freedom is tied to economic growth.
It is perhaps unsurprising that the TUC and the CPS disagree and perhaps both would feel the other is incorrect, both in their diagnosis and proposed remedy. However, a more worrying thought is that both are correct. The TUC correct that market capitalism creates inequality, the CPS correct that market capitalism is necessary for strong economic growth (which the TUC concedes has occurred in Britain since the 1980s). If this is the case then one of the inherent characteristics of a dynamic market economy is a high level of inequality. I am aware that sceptics of such an idea will point to the Scandinavian economies as evidence you can marry economic growth with relatively equality, but this does not necessarily mean that Britain can replicate their success.
Of real concern is that if both the TUC and the CPS have diagnosed the current situation correctly, then solving Britain’s problems may involve a trade-off between economic growth and equity. Rarely is such a trade-off discussed, commentators on the right and the left preferring to argue that their solution can increase everyone’s utility. I for one, hope that one side, or indeed both, is correct and that economic growth and equality can be achieved. However, if they cannot, it could be time to discuss where priority should lie.